Budgeting: The Dos and the Don’ts

March 24th, 2015 Posted in Investing|Personal Finance

Budgeting The Dos and the Don'tsStrict Budgeting Does Not Work

It would seem that anyone giving financial advice always begins by saying “use a budget”. Unfortunately, this to many seems restrictive and cloying, and few people do it when times are good. Budgeting is associated with periods of low income, but in reality, if you budget during the affluent times too, the benefits can be huge.

If budgeting does seem to be too restrictive for you, then introduce a flexible budget. Instead of saying that X amount will be spent on X every month, try saying between X amount and X amount will be spent on X every month. For example, a strict $300 for groceries can become $300 to $350 a month for groceries. Studies have shown that even this slight difference is enough to make people feel released from the confines of a budget.

A budget doesn’t need to be strict. Instead, it can be more of a general guide If you aren’t struggling financially, then you can make your budget as vague as you like, while the practice of actually having a budget and sticking to it will be stored for future use should your circumstances change. There’s no need to write down the exact amount of money for everything you could possibly spend it on; some budget “$10 per month for magazines”, which is a little extreme.

Why not budget just for the essentials?  . These are simply amounts that rarely fluctuate and are essential. When you know roughly how much you need for these each month, the real budgeting begins.

At this point, the most common mistakes of budgeting arise. People make the limits of their budget too strict or not strict enough. The only way to avoid this is by trial and error. Split your non-essential expenditure into different groups, rather than specific sets, to begin. Allow amounts for entertainment, going out, clothing and other such variables. At the beginning, it really is best to just guess – find an amount that you think “sounds” right. This might sound a little pie-in-the-sky, but there’s no set figure that is ideal for each person. You have to find out what works for you.

With this done, go through a month on your non-essential budget, then evaluate it. Are there areas where you have a lot of money left over, or areas where you spent more than you were expecting? Within reason, simply alter your budget for the next month to fit the discoveries you’ve made. After three or four months of this, you should have a pretty good idea of the patterns to your expenditure. After six months, you’ll have learned enough to set a semi-permanent budget. After all, if you keep changing your budget forevermore, the point of it is lost slightly!

With your personalized budget in hand, you’re ready to begin. But there’s one final addition that should be in every budget; miscellaneous. You can never know what exactly might appear over the coming months – be it an unexpected bill, or something more exciting like a gadget you just can’t resist – so by always including a miscellaneous amount, you’ve got that covered. If nothing of this type appears over the course of a month, simply roll this amount over. With a plan designed to suit you and a miscellaneous figure allowed for, you’ll soon wonder how you ever managed without a budget.

To streamline and minimize blog maintenance, I will be discontinuing maintaining the Canadapersonalfinancewebsite.com website (however, I will still hold the domain). I will gradually move all articles from this site to A Dawn Journal. This article originally published on the above website on Mar 7, 2009.

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